Toward 2017: Establishing England’s competitive non-residential water market


By April 2017, England’s businesses and other non-household customers are expected to be able to choose their supplier of water and waste water services and benefit from value-added services offered to them at competitive prices. The Department for Environment, Food and Rural Affairs (Defra), UK water regulatory body Ofwat and market operator MOSL (Market Operator Services Limited) are in charge of the legal framework and coordinating the development and delivery of the systems and key documents (codes, processes and agreements) that are necessary for an effective market. It is for this reason that the three organisations have established the Open Water programme, a vehicle through which to administer and oversee market activities.

England’s new non-residential competitive water market will operate in a very similar way to the Scottish commercial water sector where wholesale services would be bought from the former monopoly suppliers. Under competitive market conditions, a range of suppliers compete for customers by offering them the best deal – be it through lower water and sewage prices, greater water efficiency, improved and innovative service, or a combination of the listed benefits.

In order to establish exactly what England’s new non-household water market would look like, how it would operate and the function of each entity critical to the new market’s success, Metering and Smart Energy International spoke with Ben Jeffs, CEO at MOSL, as well as Ofwat, and they offered a snapshot of the progress made toward the introduction of retail competition in England’s water market.

Market overview

Under the new arrangements retailers will purchase water and sewerage services from wholesalers. They may sell these on to non-household customers, offering not only the prospect of financial savings but other benefits including combined bills, water efficiency advice, water re-use and so on.

Non-household customers will purchase water and wastewater services from either the retail arms of existing incumbent companies or from separate entities that will hold a licence to provide retail services.

According to Ofwat, the market design assumes that non-household premises have two elements, one for water and one for wastewater. The customer can switch each element separately.

Currently very large water users can negotiate their current water and sewerage supply, but very (very) few have a sewage meter. There are no plans to bring in two meters – one for water and one for sewage.

A decision was taken in the earlier stages of the development of the market arrangements not to allow customers to switch to a single supply point where there are multiple ones on a particular site. It was felt that would complicate things too much, and in reality, the vast majority of customers would be happy to have one retailer for all their water supply and/or sewerage services.

Non-household customers can expect a minimum standard service level from retail suppliers in the market. Customers who remain clients of appointed companies will continue to benefit from the default tariff arrangements, and customers that are transferred during the exit process would be no worse off under Ofwat’s proposed contracts. However, customers of water supply and sewerage licensing (WSSL) retailers will not be directly protected by default tariffs.

Establishing retailer-wholesaler relationships

In the new market, licensed retailers will enter into a standard wholesale contract with the wholesaler that operates in the area where there are customers the retailer wishes to serve. All of the detailed terms and conditions will be dealt with within a wholesale-retail code. Retailers and wholesalers will be required to comply with the wholesale-retail code, which is a statutory code, although it is recognised that there may be some scope for negotiation of additional or innovative services.

Retailers will be the prime contact point for non-household customers for all matters except unplanned changes to water or sewerage services of an urgent nature. For example if there is no water or a potential water quality matter, the customer will be asked to contact the relevant wholesaler directly.

Wholesalers are expected to treat each retailer equally in terms of the tariffs they offer and the levels of service they provide. Wholesalers will also be obliged to supply water to any retailer that has obtained a licence on an equal basis, regardless of whether it is the company’s previous retail ‘arm’ or a new entrant, based on a fixed margin.

Once a customer has reached an agreement with a new water retailer, the retailer will make a corresponding agreement with the customer’s wholesaler. Using the customer’s unique supply point identifier (SPID), the central market operating system will then re-allocate the customer to the new retailer from an agreed date. The customer’s water usage to date will be calculated and a final bill produced by the existing supplier.

The switch will take place on an agreed date, from which time the new retailer will be responsible for managing the relationship and producing future water and wastewater bills.

Market operator in new market delivery

MOSL’s primary responsibility is to procure, build and test the core IT system – the ‘Central Market Operating System (CMOS),’ said Ben Jeffs, chief executive at MOSL.

The CMOS will be at the heart of the new market when it goes live in April 2017 and will provide the capability to enable nonhousehold customers to switch from one water retailer to another.

In September 2015, MOSL officially appointed its IT partner, CGI Group, which is responsible for building, testing and delivering the central market operating system (CMOS) upon which the new market will depend. CGI has implemented the CMOS successfully in other markets, including the Netherlands. MOSL and CGI are now working side-by-side to deliver the many phases of this complicated programme.

As well as building the core system, MOSL is responsible for delivering a comprehensive engagement programme with its members to support them ahead of market opening and has provided portfolio managers to act as the primary contact point for all water companies’ questions and queries.

1.2 million eligible businesses and other non-household customers (mainly in England) will be able to shop around for their water retailer. The cost of introducing competition – which companies will not be able to pass on to customers – is estimated to deliver a net benefit of around £200 million to the UK.

Following Scotland’s example, MOSL said that a key lesson from both the Scottish experience and, indeed, other market openings in the energy sector such as gas, is the importance of all wholesalers entering accurate customer data into the central market system. The quality of data is probably the single biggest determinant of the experience that customers have when they switch.

Previous industries’ experiences have shown that improving data can continue to be a challenge long after launch.

Jeffs adds: “While the principle challenges are technical and relate to data, there is an increasing challenge for companies to understand the cultural and operational challenges of separating their business and working in a competitive environment for the first time since the water industry was privatised in 1989.”

Open Water data pilot

In April 2015, a data pilot was initiated with a view to providing a first view of the quality of companies’ data, common issues and themes and implications for the opening of the new market for non-household customers. MOSL issued its data strategy in January 2016.

Companies, as well as Ofwat and MOSL, have recently issued the first of a series of ‘letters of assurance’ to Defra, which provide evidence that the market opening is on track and which will inform the Secretary of State’s decision in February 2017 whether to permit the market to open.

Companies have done early communications checks with the central market operating system (CMOS) and can begin uploading data from April to October 2016, which is the beginning of the ‘shadow market’ phase during which time companies will be able to test their systems and processes in a ‘near live’ environment.

An Ofwat spokesperson told Metering & Smart Energy International in an interview that, “work to open the market is on track for April 2017 and within budget. The programme partners (Defra, Ofwat and MOSL) have robust governance, intelligence-sharing and programme management structures and processes in place to make sure work remains on track.

“A series of independent reviews will also allow preparations to be fine-tuned and provide all stakeholders with further confidence that the market will be ready from April 2017. The legislative and regulatory framework for the market is now well developed and significant progress has been made in establishing the central IT systems. The major focus of the programme is now shifting towards company readiness.” MI